Companies & Industries

Netflix Backs a Dead Show for TV's Future

If Arrested Development had as many viewers in 2006 as it has today, Fox never would have canceled it.

At least, so suspects Netflix (NFLX), which for years has been streaming old episodes of the critically acclaimed comedy. Now the video giant will stoke the fervor for Arrested Development with a slate of 15 new shows—effectively, a fourth season—that will be launched in the early hours of the morning May 26, the company said in a release this morning.

Ted Sarandos, chief content officer at Netflix, says the release is aimed at viewers who became fans of the show after Fox swept it off the screen. It also marks the latest foray into original content by Netflix, part of a push to spend about 5 percent of its programming budget on original shows. The theory: The more shows Netflix controls entirely, the less it will have to rely on expensive rights to programming from other sources. Original video offerings may also make for more “sticky”—or loyal—customers.

In a Wired piece last month, Willa Paskin noted Arrested Development is a particularly good fit for on-demand viewing:

The very qualities that made Arrested Development such a hard sell on network TV—its complexity, depth, layered blink-and-you’ll-miss-it humor—made it perfect for this new era, in which obsessives can watch and rewatch their favorite shows whenever and wherever they feel like it.

Producing a show from scratch isn’t cheap—at least not relative to streaming old episodes of 24. Netflix’s last original series, House of Cards, cost the company about $100 million for 26 episodes. According to Wired, the new Arrested Development episodes will run about $45 million.

What’s $45 million to a company like Netflix? Roughly $2.80 per subscriber, or 2.7 percent of its 2012 expenses. Another way to look at it: one year of revenue from about 5.6 million subscribers.

Will it be worth it? Netflix hasn’t released viewing data for House of Cards but said it was thrilled with with its performance.

Given that response, green-lighting a season of Arrested Development might not be as risky as it seems. With a treasure trove of data on what its 33 million subscribers watch, Netflix ought to be able to estimate the financial return on its original programming better than most TV production companies.

The offering will undoubtedly attract some new subscribers eager to see what has happened to the Bluths since we saw them last. And a highly anticipated original offering might be even more valuable in precluding cancellations. Netflix has plenty of competition, switching costs are low, and customers are notoriously fickle. Retention is a big deal.

In short, every time Netflix yells “action” on something like Arrested Development, it is refining its equation on what original programming is worth. In today’s video landscape, there is huge value in that.